A Primer on Mortgage Insurance
By Jayson Stebbins Mortgage Professional
Many buyers in Santa Clara and surrounding counties have purchased their homes with loans that required Mortgage Insurance . Mortgage Insurance ( MI ) is a requirement on some programs when you buy a home with less than 20 % down . MI is also required when you buy a home with a government-backed program like an FHA loan or a USDA loan .
The most common questions about MI ( sometimes called Private Mortgage Insurance or PMI ) are these : how do I avoid paying it , and how do we remove it once we have it ?
MI avoidance is not always easy especially since most of the time it requires a 20 % down payment . Here are some ways to avoid paying MI :
1 ) First and Second mortgage combos : Using a combination of a first mortgage and a second mortgage , you can eliminate the MI requirement and still put as little as 10 % down . This creates value as every dollar of your payment is now eligible for the interest deduction at year end .
2 ) Higher rate : some programs exist that will allow you to do as little as 5 % or 10 % down and have no MI , but you will pay for it in a higher interest rate . When you look at the payment side by side many times the higher rate does not result in a higher payment as MI is out of the picture , and again every dollar of the payment is now a benefit on the tax return .
3 ) Buying out the MI : it is possible to do a one-time payment and pay the MI all at once . Usually the cancelled monthly MI payment will result in a manageable recapture over time , and could justify the upfront expense .
As for the removal of MI , it is important to note that some programs do not allow it at all . In the past decade the rules of MI removal have changed many times , so the removal of MI depends on the age and type of your mortgage . Here is a quick primer :
FHA loan : depending on when you closed on your FHA loan , the only way to remove the MI is through a refinance into a new loan . Older FHA loans have a formula that allows removal without a refinance . Contact your lender for more information on how they handle the removal .
Conventional loan : this is the loan that has the easiest path to MI removal . Refinance is always an option . However , if you have built your equity position to 20 % you can petition the removal of MI by your lender . They may require an independent appraisal or other documentation to comply with the removal . Check the disclosures on MI in your original loan package for details .
Other loans like USDA do not allow for MI removal so a refinance would be the only way to remove the monthly MI liability .
When strategizing about MI , it is always good to look at your long-term plan , shortterm cash flow , and the power of money . Sometimes MI is unavoidable , but with some creative thinking and planning you can make other solutions work for your family .
Jayson Stebbins is a 23 year veteran of the Mortgage Banking industry and an Accredited Mortgage Professional through the Mortgage Bankers Association . He grew up in Morgan Hill and currently lives in Gilroy . He is the local Branch Manager of Guild Mortgage , a 56 year old mortgage banking firm . His office is in Morgan Hill and serves all of Santa Clara , San Benito , and Monterey counties . You can reach Jayson and his Team at 408-782-8800 or at jstebbins @ guildmortgage . net
Jayson Stebbins is a licensed mortgage agent in CA for Guild Mortgage Company NMLS # 38463 ; Licensed by CA Disclosure : Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act . NMLS Company Unique ID 3274 ; Branch Unique ID 38480 . The postings on this editorial don ’ t necessarily represent the positions , strategies or opinions of Guild Mortgage Company or its affiliates . This information is not guaranteed to be accurate and shall not be construed as a guarantee of loan approval . All loans are subject to underwriter approval , and are subject to change without notice . Equal Housing Lender .
Guild Mortgage Company presents
Learn How You Can Buy A Home in Silicon Valley
Free Seminar showcasng many financial options available to you
Saturday , March 25th , 2017 at the Morgan Hill Community and Cultural Center
Madrone Room • 10 am to Noon ( lunch will be provided and there is a free raffle at noon )
RSVP : nperino @ guildmortgage . net or call 408.782.8800
68
GILROY • MORGAN HILL • SAN MARTIN MARCH / APRIL 2017 gmhtoday . com
M
A Primer on
Mortgage
Insurance
any buyers in Santa Clara and
surrounding counties have
purchased their homes with
loans that required Mortgage Insurance.
Mortgage Insurance (MI) is a requirement
on some programs when you buy a home
with less than 20% down. MI is also
required when you buy a home with a
government-backed program like an
FHA loan or a USDA loan.
The most common questions about
MI (sometimes called Private Mortgage
Insurance or PMI) are these: how do I
avoid paying it, and how do we remove it
once we have it?
MI avoidance is not always easy
especially since most of the time it requires
a 20% down payment. Here are some ways
to avoid paying MI:
1) First and Second mortgage combos:
Using a combination of a first mortgage
and a second mortgage, you can eliminate
the MI requirement and still put as little as
10% down. This creates value as every dol-
lar of your payment is now eligible for the
interest deduction at year end.
2) Higher rate: some programs exist
that will allow you to do as little as 5% or
10% down and have no MI, but you will
pay for it in a higher interest rate. When
you look at the payment side by side many
times the higher rate does not result in a
higher payment as MI is out of the picture,
and again every dollar of the payment is
now a benefit on the tax return.
By Jayson Stebbins
Mortgage Professional
Jayson Stebbins is a 23 year
veteran of the Mortgage Banking
industry and an Accredited
Mortgage Professional through the
Mortgage Bankers Association.
He grew up in Morgan Hill and
currently lives in Gilroy. He is the
local Branch Manager of Guild
Mortgage, a 56 year old mortgage
banking firm. His office is in
Morgan Hill and serves all of Santa
Clara, San Benito, and Monterey
counties. You can reach Jayson
and his Team at 408-782-8800 or
at [email protected]
3) Buying out the MI: it is possible
to do a one-time payment and pay the MI
all at once. Usually the cancelled monthly
MI payment will result in a manageable
recapture over time, and could justify the
upfront expense.
As for the removal of MI, it is important
to note that some programs do not allow
it at all. In the past decade the rules of MI
removal have changed many times, so the
removal of MI depends on the age and type
of your mortgage. Here is a quick primer:
FHA loan: depending on when you
closed on your FHA loan, the only way to
remove the MI is through a refinance into a
new loan. Older FHA loans have a formula
that allows removal without a refinance.
Contact your lender for more information
on how they handle the removal.
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